Global Perspective: Following a retrenchment of overseas operations by numerous major banks, how are firms in emerging markets responding?

In the three decades before the 2007-08 global financial crisis, the world’s financial networks became increasingly interconnected. Financial system regulatory convergence, the growing penetration of World Trade Organisation rules and the creation of currency unions, such as the euro, resulted in a surge in cross-border capital flows.

International banks began to see the emergence of a single global marketplace, and the potential this held for revenue and asset growth. In 1998, co-chairman of the freshly formed Citigroup, Sandford Weill, announced the dawn of a new age of banking in which large institutions would act as financial supermarkets to the world, their activities so diversified that they would be able to withstand the inevitable downturns of the global economic cycle.

Citigroup was not alone in this view: major financial players such as the Royal Bank of Scotland (RBS), Deutsche Bank, BNP Paribas, Barclays, HSBC,Crédit Agricole, UBS, Bank of America, Société Générale and JPMorgan Chase grew their international businesses on the back of a rising tide of global capital, which saw cross-border transfers rise from $500bn in 1980 to a record high of $12.4trn in 2007.

Disappearing Act

The global financial crisis which started that year, however, brought an end to this trend. According to data from McKinsey Global Institute, cross-border capital flows had declined by more than 80% from their peak by 2009, reduced to a level lower than that seen in the early 1990s. By 2016 cross-border capital movement had risen to $4.3trn, above the level it was in the late 1990s, but still 65% lower than the high of 2007.